The trade data mismatch of India and China which is attributed to ‘under-invoicing’ by Indian importers for the imports originating from China, has attracted wide media coverage.
How about the picture of bilateral trade between India and China?
Trade ties - Trade ties began to boom since the early 2000s driven largely by India’s imports of Chinese machinery and other equipment.
In 2008, China became India’s largest trading partner.
Total bilateral trade - The total bilateral trade registered a 14.6% increase compared to 2021, amidst the military standoff in eastern Ladakh.
India and China bilateral trade continued to boom, crossing 100 billion dollars for the second year in 2022.
Major imports - India’s biggest imports in 2021 were electrical and mechanical machinery, chemicals used in industrial production, active pharmaceutical ingredients and auto components.
India also imported medical supplies during the pandemic.
Trade deficit - China’s exports increased while India witnessed a decreased in exports leading to a trade deficit of over 75 billion dollars.
What about the trade data mismatch?
China reported its exports to India over 103 billion dollars while India claims the Chinese imports at 92 billion dollars, hence a mismatch of 12 billion dollars.
This reflects significant asymmetries in international trade statistics.
Impact - The discrepancies in international trade statistics can result in ill-informed policy decisions.
Under-invoicing is one of the reasons for trade data anomalies.
What reasons have been attributed for trade data mismatch?
Diversion of goods - Re-routing or re-exporting of goods imported from China generally do not reflect in India but Chinese Trade Statistics record these as exports to India.
This leads to trade data asymmetries.
Some of the trading models that re-routes or re-exports goods to another country includes
Merchanting trade transactions
Bill to-ship to model
Switch-bill of lading
High Sea Sale (HSS) transactions
Free Trade & Warehousing Zones - Some Indian trading firms buy bulk goods from China and maintain inventory at FTWZ locations and sell them in small quantities at higher profit margins.
Chinese Statistics will record it as exports, but for India it is not imports as the goods are kept at a FTWZ, a foreign territory, as defined under the SEZ Act, 2005.
Record maintenance - The mismatch in trade statistics also happens due to maintenance of records of export statistics and that of import statistics records.
Inconsistent attribution of trade partners - A country may record statistics on goods destined to claimed territories as ‘others’ instead of reporting it as an exports to an actual country.
National differences - There can be national differences on reporting of underlying records i.e. statistical norms and standards used to compile trade statistics.
